momagri, movement for a world agricultural organization, is a think tank chaired by Christian Pèes.It brings together, managers from the agricultural world and important people from external perspectives, such as health, development, strategy and defense. Its objective is to promote regulationof agricultural markets by creating new evaluation tools, such as economic models and indicators,and by drawing up proposals for an agricultural and international food policy.

Commodity speculation:
The CFTC has not said its final word

November 18, 2013

A year after failing to persuade a U.S. District Court in setting new standards against excessive speculation, the Commodity Futures Trading Commission (CFTC) launched a new initiative and, on November 5, 2013, voted a proposal designed to limit trading positions on 28 commodities. Approximately 400 traders would be concerned by these position limits. The CFTC is thus reviving one of the most controversial provisions of the Dodd-Frank Act that was voted in 2010 to reform Wall Street.

This new power play is occurring at a crucial time, when commodity speculation––especially agricultural commodity speculation––and the role of large U.S. banks are specifically condemned. This past October, the CFTC was successful in making derivatives trading more transparent by requiring JP Morgan Chase to pay a $100 million fine for “reckless behavior” in the “London whale”1 fraud scandal. In the past few months, various international organizations and institutions recently stepped forward to criticize the distorting practices generated by excessive speculation in derivatives markets.

According to the U.S. regulators, this new proposal would “prevent market manipulation while ensuring adequate funds for bona fide investments, and safeguarding the price setting process.”

This new measure is to be welcomed, since the increase of pure speculative behavior that is totally disconnected from economic, physical and strategic fundamentals represents a genuine threat in a context of growing uncontrolled deregulation and related price hyper-volatility. The task of regulators and decision-makers is all the more difficult, since we note an increasing number of opaque transactions, and since most of them are eschewing any form of control.

Let us hope that the CFTC will remain powerful in coping with the pressure by lobbies and investors unlikely to accept stronger anti-speculation legislation. Among these, we note the CME Group, the world’s leading futures exchange offering the widest range of futures products.

Gary Gensler, the current CFTC Chairman and man of steel, is set to step down at the end of the year and Barack Obama has picked Timothy Massad, a former U.S. Treasury official, to replace him. Will he have his predecessor’s determination to protect one of the more dynamic financial market regulators? We will only know after he takes office.

In the meantime, while the CFTC remains a key building block, what about the regulation of Asian or even European derivatives markets? Above all, it will be vital to move beyond local initiatives and initiate a global financial reform, if we want the implementation of transparent agricultural markets and the adoption of effective regulation tools.

1 The “London Whale” gets its name from the positions taken by a London-based French trader that generated losses of $6.2 billion in 2012.